College Costs While ER'd

[Papi]

Hello,

I plan on ER about 2-3 years before the oldest of my 3 kids starts college.  I have crunched the numbers for funding their education out of our retirement stash and it appears like it will work, but I would sleep better at night and have a better margin of safety if it were possible to get any financial aid for them.

So are they an ER's out there that have put kids through college while you were retired?   Were you able to get any financial aid because you were retried and had a much lower gross income? 

I briefly looked into how you go about getting financial aid for college.    It looks like pretty much everyone would have to fill out a FAFSA (Free Application For Federal Student Aid) with the goverment.  Doing so results in a score of EFC (Expected Family Contribution).   There are some rough calculators for this and with my projected income at that time (retired), the number it spits out for us is about $1000 EFC for 1 year college costs of around $14,000 .  That $1000 EFC looked really nice to me   .  But are there any ER's out there that have real-world experience with this?   The FAFSA application ignores retirement accounts and primary residence equity.  THis is where I have most of my net-worth, so it appears that we could get some financail aid.  How likely is this to happen?

THanks,

--Papi

 

[Brat]

Most financial aid is income based. How much your kids get, what can be borrowed, and offers of work-study are school specific.

The better you child's academic record and activities the more likely it is that they will really want your student and put together a good package.

 

[justin]

I seem to recall something like 5% of the parents' assets are included in the EFC amount. It sounds like "assets" is defined as everything but retirement accounts and equity in principal residence.

 

[Papi]

Hi Justin,

Yes, as I recall the federal aid application is looking only at gross income from the federal tax return (which mine at that time should be really low) and non-retirement investments. Like I said, the majority of my investments will be in retirement accounts and home equity so it appears that I would be in a good position to qualify for financial aid.

--Papi

 

[region2]

Just finished my 7th FAFSA (over 4 years), 1 or more to go. Interestingly, there is always more to fill out than the FAFSA. Definitely, retirement accounts are not figured into the EFC figure.

My eldest goes to a very small, well-known, Midwestern liberal arts college = ridiculously expensive. Part of his financial aid is work-study. Even though there is a semester cap, the more he works, the more he gets paid. This has been a nice surprise. I would guess that not all of the work-study kids put all of their time in and there's always a little left in the pot.

 

[veritasophia]

$1000 EFC is really nice! Since most of your net worth is in retirement accounts and your income will be relatively low, you can confidently assume your child will receive grants.

I'm a senior and I have a really high EFC because of taxable accounts. However, I still get student loans, half of that goes to tuition and books the other half to Vanguard (don't tell 8)).

Scholarships are not too hard to receive, especially with a low EFC. For most of them the application process is a pain so a lot of my class mates don't even bother.

Grants + Loans would cover $14,000 here in California's public universities, could be the same for where you live.

 

[Papi]

Hi,

So even scholarships require an FAFSA application and EFC score? Wow, I didn't know that; I figured those were solely merit based.

--Papi

 

[Ed_The_Gypsy]

EVERYTHING requires a FAFSA score.

Have your kids apply for every scholarship they can find. There are books on that subject in the library. Watch out for one or two of the websites that want to help you find scholarships. Your high-school counsellors should know which ones are the spam sites.

As near as I can tell, it is best to retire before the kids go to college. If you retire while they are in college, the school figures their financial aid based on LAST years' tax forms, so unless you are able to let them know that you are unemployed, you all will have an expensive year. But it sounds as if you are already set.

 

[Papi]

Hi Ed,

Thanks for the comments. That is encouraging.

Even though daugther #1 won't start college for another 7 years, my engingineering training brings out the anal meticullous planning for such things. My dilema down the road will be how I decide to do the 72t IRA withdraw. If I take out too much, it will raise my EFC (not to mention I don't want to take out more than I absolutely need from the IRA); too little lowers the EFC but if no financial aid materializes could make things messy.

--Papi

 

[Ed_The_Gypsy]

Papi,

Somebody, probably at your kids' school or the district, or maybe from a local college, knows in some detail how parents' income affects financial aid, so you could do a little planning. Worst case, you could take a shot at living real cheap one year and see what happens.

We had presentations by school placement people who knew how to play the game. My situation didn't help much and the kids didn't have the grades or scores to get merit scholarships, so I figure on working for a little while longer yet.

Best of luck!

Ed

 

[roadkill]

  How likely is this to happen?

I just completed my second FAFSA. The formula assumes a very large portion of your gross income is available for college costs. Approximately 6% of your non retirement assets are assumed available for college costs. At the end of the day, however, most financail aid is in the form of loans. Most schools will have money available for varity scholarships, but they are limited.  It is not uncommon to see students graduate with rather significant debt if they attend private (expensive) schools.

 

[Canadian FIRE]

I plan on ER about 2-3 years before the oldest of my 3 kids starts college. I have crunched the numbers for funding their education out of our retirement stash and it appears like it will work, but I would sleep better at night and have a better margin of safety if it were possible to get any financial aid for them.

OK, perhaps I'm a bit nuts here. Why does everyone want to foot the entire bill for their kids education? I'm planning on helping, but I don't think for a second that I'll be picking up the entire bill. My parents did what they could and I will do the same.

Just my thoughts,
CF

 

[73ss454]

Right or wrong I told the kids since they were small that DW and I would foot the bill for all college costs. I guess that's one of the reasons were both still working at 56/55.

DD went straight through with a masters and DS only a HS education but some college. He was never a good student but a great dedicated worker, and does very well for himself.

Were very proud of both of them and glad we paid what we paid. What ever DD's education cost we gave the same amount toward a home for DS.

 

[samclem]

I believe we'll pay most of the tab, but our daughter will be paying a portion as well (with a job/co-op work). I did it and lived, as have thousands of others. But, then, she's one of the dwindling few HS juniors at her school without her own car, too. Damn cheapskate dad.

 

[kz]

We did the same thing, 73. We saved for college for the boys for 10+ yrs prior to DS#1 starting college. After one year he decided to join the military and three years later went back to school. Between the GI Bill and living at home part of the time we didn't spend as much for him as we had planned. We then gave him the downpayment for his home (once he had a job) and all new appliances for said house.

DS#2, OTOH, went straight to college graduating at the four year mark with two majors. His schooling was 3x that of his brother's.

And DH retired last May at age 53, the same month that the last son graduated. Funny how that worked out.

Sam--our sons lived without their own cars in HS. They shared a hand-me-down from mom until the last one went to college. We then sold the car which covered one year's tution.

 

[farmerEd]

OK, perhaps I'm a bit nuts here.  Why does everyone want to foot the entire bill for their kids education?  I'm planning on helping, but I don't think for a second that I'll be picking up the entire bill.  My parents did what they could and I will do the same.

Just my thoughts,
CF

You may not have a choice really in the sense that if your financial situation is very good (like most ER's), you have to do the FAFSA anyway, so your "good" financial postion is going to make it harder for your child to get Aid...you can't just tell the school to not look at your assets/income because you are not chipping in. So if you don't plan on helping, your good financial situation penalizes the child.


When I went to school I delcared myself independent after the first year(never moved back home) and all aid was based on my own personal financial situation (i.e. a min wage summer job and some work during the school year). I  bet the rules have changed and they don't allow you to call yourself(your child) emancipated/independent so easily these days.

I am ER'ed, with 4 kids yet to go to college...I'll encourage them to go to a state school and work/save so they can contribute as well when the time comes, but I'll do what I can for them as well.

 

[Papi]

Hi !,

I did declared myself indepdent from my parents as well many moons ago during the college days. That did help qualify for aid back then. But from what I can tell now, this is no longer allowed.

My point is that my good early retirement position is ignored by the financial aid applications. Yes they look at your income and personal investments, but these will be low for my case. I haven't read anywhere where they start to peek at your retirement accounts or home equity. If anyone knows for sure otherwise, please let me know!

Thanks,

--Papi

 

[TromboneAl]

I'm semi-retired with DD finishing up freshman year.  Here's what I've learned:

1. Consider sending your kids to a public university.  The education can be as good or almost as good at half the cost.  Let your kids know now that you will only pay the equivalent of public school tuition.  We're paying $40K per year for Wash U in St. Louis, where many kids drive BMW's and lobster tails are available in the cafeteria.  I wish I'd thought about this more years ago.

2. When you get your financial aid package from the University, negotiate.

3. Spend student's resources first to improve aid chances for future years.

4. Research and apply for lots of scholarships, but don't hold your breath.  For freshman year we spent hours and hours searching and applying for scholarships.  The only non-local scholarship we got was a $1,000 "Prom Wishes" scholarship.

-------------------------------

Why does everyone want to foot the entire bill for their kid's education?

Because the kids can't.  DD accumulated $4,000 for freshman year, and took the max loan ($2,650).  Add another 6K from scholarships, that still left about $27K due.  There's no way the kid can pay that.

One thing we did is loan her some money with the same terms as the Stafford loans.  The rest we just paid.

Finally, remember that you will be saving some money by having the child at college.  This is what I figured (annual amounts):

Tax Credit               2000
Swimming                334
Driving                2007
Insurance               400
Food                   1200
Jenny's Allowance        1200
Hot water                 200

So, for freshman year, the bottom line was $21,000 from our pocket.

 

[Maximillion]

The Governor of Minnessota, Jessy" the Body" Ventura, suggested that maybe if the young person worked for a year or two, they could save for their University education and eevn possibly have a better idea of what to study.

This gentleman even had the affrontery to suggest that if the young person did not have the monies to go to School, they work during the day and take evening Classes.

Jesse is obviously not a Politician, but he does have a lot of common sense.

My Friend's Son has just completed more than 10 years of University, has huge loans, and a Ph.D that no one wants to hire.

What we went through, made us what we are.

 

[roadkill]

Because the kids can't.  DD accumulated $4,000 for freshman year, and took the max loan ($2,650).  Add another 6K from scholarships, that still left about $27K due.  There's no way the kid can pay that.

Many students I am familiar with are graduating with up to $50,000 of undergraduate debt, the bulk of which is borrowed by the parents through the PLUS loan program.  Another cost driver is the fact that many are not graduating in 4 years for whatever reason.

 

[yakers]

Lots of good points here, like the kids incomes cannot keep up with college expenses and often college is taking more than 4 years. Another reason for choosing a public college is not only are they cheaper and can be of good quality but they tend to follow a formula about admission and financial aid. With private schools they can ask *whatever* questions they want. A friend of mine's son went to CALTECH and the school required my friend to take out a mortage on his paid off home to pay for part of the college costs. Now this school is so well endowed, they have enough money to pay for 100% of every student. If you are at the very top of the nation academically you get a free ride regardless of parental resources.
So there are a lot of issues but IMHO nothing beats putting some money away now because there are too many variables in the whole college process.
If my younger son, still in high school, were to get into Stanford or CALTECH I would be happy to keep working (in part since I like my job) because nothing gives me more pleasure then seeing my kids succeed. But I will support him rather than push him in his studies. And I've set up a DRIP stock fund for our first grandchild, maybe she will not have to worry about college financing.

 

[BarbaraAnne]

We have 2 sons.  Several years ago we used the Texas Tomorrow Fund, which is a prepaid tuition plan, to fund 4 years of college for each son.  This was just before tuition and fee costs were about to skyrocket, so each child cost us about $17,000 for 4 years of college at any Texas university.  

Fast forward to the present... Older son is a freshman at one of the flagship universities and very happy.  Younger son is several years away from college but very happy to attend same college as older brother.  

Room and board is about $3500 hundred per semester which totals about $28,000+ for 4 years for older son and about $35,000 for younger son due to inflation..

They both have enough in their college funds plus some extra to cover room and board.  The college funds are UGMA funds started when they were young.  They will each be responsible for misc expenses, textbooks, car expenses etc.  Older son has held summer jobs since he was 16 and can easily cover those expenses.  

So each child (hopefully) will have a 4 year education at a very good state school for about $50K total... For graduate school they are on their own... 
.  

 

[Nords]

But, then, she's one of the dwindling few HS juniors at her school without her own car, too.  Damn cheapskate dad.

We're saving our '94 Ford Taurus wagon for our kid's use.  98K miles, two tons of sheet metal, automatic transmission, & ABS.  We'll ignore for now the fact that it could also haul seven passengers or be transformed into a rolling bordello.

We know a kid at tae kwon do who just reached 2nd dan black belt.  She's the daughter of a patrol cop dad and mom is also a black belt.  When the kid turns 16 (a few more years) she'll be permitted to drive her dad's three-year-old Shelby Cobra.  Hmmmm...

Phew, Al, don't let our kid find out what your kid gets for an allowance!

As for our kid's college money, we've set aside what we think should cover four years at UH's resident rates or at least a couple years anywhere else.  We've also told her that there will be profit sharing of every scholarship that she manages to pull down, so winning scholarships will literally put money in her pocket as well as pay for her education.  (Gotta motivate her to fill out all those applications.)  And eventually she'll realize that what's left of her college UTMA will fund a home down payment (or a heckuva party)-- more scholarship motivation.

2009, the year before she goes to college, we'll optimize the FAFSA.  There will be no IRA conversions, no Reserve paychecks, no momentum-trading cap gains, and an absolute minimum of passive income.  It never occurred to me that we'll be doing FAFSAs & scholarship applications every year, though.  I'm not sure that we can maintain such discipline all the way through 2013, though. 

If all of this doesn't work out, she's always free to join the military and go to a service academy.  Over her mother's dead body, anyway.

The college-savings strategy that confuses me is when to shift to bonds.  Theoretically we're supposed to exit the stocks this year (she's starting 9th grade) and start moving toward a bond/CD portfolio over the next year or two.  However we already have some EE/I bonds set aside for the first year's tuition, there's always the unexpected prospect of a little help (however small) from Grandma & Grandpa, and work/study plus scholarships will probably pick up a good bit of the load.  Plus it makes no sense to me to go to bonds now for the portion of her college expenses that won't be paid until 2013-4 (senior year).

I'd hate to get hammered with a bear market in the year before college, but I'd hate just as much to cash in all those cap gains for a kid who could end up not needing any of it.  Admittedly the first issue is fiscal and the second is mainly emotional.

Anyone else solved the college-fund asset-allocation strategy problem? 

 

[yakers]

"Anyone else solved the college-fund asset-allocation strategy problem? "


A few months ago I moved my son's main UGTMA fund from a pretty mutual fund into the local credit union. Although I probably lost some growth I cannot take the chance of the fund tanking. Also it makes it easyier to spend down now on current school related expenses. My son's high school band just spend spring break on a trip to China. There went $1.5K, but I think it was money well spent.

 

[TromboneAl]

Phew, Al, don't let our kid find out what your kid gets for an allowance!

I figured someone would notice that.  That $100/month allowance was for everything except food (at home) and things required at school.  That is, she paid for her own clothing, entertainment, any food outside the home, gifts, shampoo, etc.

That system worked very well, and she's grown up to be as cheap as her old man.